SME loan guarantee scheme

COVID-19 measures: how your business might be affected

The Government has announced an extension of the SME Recovery Loan Scheme, as well as various changes to the Scheme. Phase 1 operated until 30 September 2020 and Phase 2 is due to end on 30 June 2021.

As a result of the changes, the Scheme will be open only to businesses (including self‑employed individuals and non-profit businesses) with up to $250 million turnover which received the JobKeeper payment between 4 January 2021 and 28 March 2021. Participating lenders will be offering guaranteed loans on the following terms:

  • the Government guarantee will be 80% of the loan amount (up from 50%);
  • lenders are allowed to offer borrowers a repayment holiday of up to 24 months (the time was previously unspecified);
  • loans can be used for a broad range of business purposes, including to support investment (see below);
  • borrowers can access up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits;
  • loans are for terms of up to 10 years (up from 5 years);
  • loans can be either unsecured or secured (excluding residential property); and
  • the interest rate on loans will be determined by lenders, but will be capped at around 7.5%, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time (previously capped at 10%).

Lenders can offer any product suitable to the borrower – with the exception of credit cards, charge cards, debit cards or business cards. Loans issued under the Scheme may take any other form of credit, provided the Scheme’s eligibility criteria are met.

Loans will be available from 1 April 2021 and must be approved prior to 31 December 2021.

Loans backed by the Scheme will be available through participating commercial lenders. The decision on whether to extend credit, and management of the loan, will remain with the lender.

Eligible loan uses

Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from Phase 1. Loans that are more than 30 days in arrears cannot be refinanced and borrowers who have entered external administration, or are insolvent, cannot refinance debts.

Loans can be used to purchase non-residential real property (such as commercial property) or for the acquisition of another business.

Loans issued under the Scheme can be used to refinance existing loans or for a broad range of businesses purposes (including to support investment) but cannot be used to purchase residential property or financial products and cannot be lent to an associated entity. Loans also cannot be used to lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.

For more detail on the loan scheme visit this link on the treasury website – treasury.gov.au

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